Since the Chinese government launched the economic reform and "open door" policies in late 1978, investment between Hong Kong and Mainland China has increased remarkably. In fact, Hong Kong has been the Mainland's dominant supplier of FDI. Income distribution in Hong Kong was affected when investors, in search of a higher rate of return, moved their capital from Hong Kong to the Mainland. The empirical findings here show that Hong Kong's investment in the Mainland led to an increase in the rate of return of capital. Regression analysis indicates that the income redistribution effect of Hong Kong's investment in China has been biased towards skilled workers.
JEL Classifications (F15, F16, F21)